Short selling is fine and helps markets but I am against naked short selling. Selling more shares than are available impacts firms that depend on capital markets for funding. Typically financial institutions, penny stocks, resource companies, and tech/biotech start-ups are hurt by naked short-selling. This ban should have been instituted many years, or decades, ago. Patrick Byrne of Overstock (OSTK) has been harping for years about how naked short selling was hurting his company. Who knows if naked short selling is the reason for Overstock's struggles but if it wasn't widespread, it wouldn't even be in a discussion.

The cynic in me says that this change is going to have little impact. SEC doesn't have the resources to enforce it. But if someone is ever caught, they will pay a price now.

You are correct in saying that Overstock never made any money but that doesn't mean much. Start-ups often don't make money for a while. Amazon didn't make money for something like 4 years. The key point is that these companies depend on the capital markets for funding so naked shorting hurts them. But like I said, I'm not saying Overstock's problems are all due to naked shorts or if even any of them are. But that's the argument of their CEO.

contrariandutch

September 19, 2008 at 1:55 PM

But I definitely see the argument in shorting the stock of a company that has never made any profits, does not seem likely to make any in the foreseeable future and is only kept afloat by the unwavering belief of it's devotees. They have been in business for nearly ten years and are hardly a completely fresh startup.

What is the plan here? Keep issuing new stock again and again forever? Looks like a posterchild for "companies that deserve to be heavily shorted".